Co-authored by Emma Jenkin and Megan Romeo
Our Portfolio Management Team provides a Quarterly Report on the September quarter including global economic summary and outlook, interest rate environment, credit spreads and the outlook for Managed Income Portfolio Service (MIPS) portfolios. Here is an extract from the MIPS Quarterly Report with the full Quarterly Report provided to MIPS holders
September quarter in a nutshell:
“Fixed income rallied, equities sold off and credit widened”
Key themes
- A volatile quarter for global markets driven by Chinese growth uncertainty and delayed Fed interest rate “lift off”
- Australian economy continues to stagnate
- Market predicts Australian rate cuts
- Impact on the global and local bond markets has been widening credit spreads with low levels of new corporate issuance
Australian Interest Rate Update
The stagnation in the Australian economy has led to the Australian interest rate curve flattening over the last quarter as the markets expect rates to remain lower for longer. This was reflected in the downward parallel shift in the long end of the curve depicted in the chart below.
Australian yield curve
Source: Bloomberg
With the federal open market committee (FOMC) September rate decision out of the way (although attention now turns to the October Fed meeting), the domestic market will refocus on what the Reserve Bank of Australia (RBA) will do to support a domestic economy, which continues to struggle to build any growth momentum. As such, domestic bond markets have increased its probability of further rate cuts by the RBA, with some economists predicting one to two 0.25% rate cuts to occur over the course of 2016.
View the MIPS webpage
If you are considering adding MIPS to your portfolio, please contact your dealer to get a full copy of the report.